Canadian dollar unchanged ahead of FOMC announcement

The Canadian dollar was little changed against its US counterpart Wednesday, as investors shrugged off strong Canadian wholesale sales data ahead of a key rate statement from the Federal Reserve.

The loonie was trading at 0.9203 US, down 0.05 percent from its previous close. The loonie traded within a narrow intraday range of 0.9170-0.9210.

In economic data, Canadian wholesale sales surged 1.2 percent in April, doubling the consensus rate of 0.6 percent. Sales volume, a component used to calculate gross domestic product, advanced by the same amount, Statistics Canada showed.

Today’s figures indicate the Canadian economy rebounded strongly at the start of the second quarter, due in large part to pent-up demand. This likely bodes well for Friday’s retail sales report, which could show retail receipts advanced 0.5 percent in April.

Statistics Canada will also report on consumer inflation Friday. Consumer price inflation in April reached 2 percent for the first time in two years, StatsCan reported last month. Economists forecast the CPI rate at 2.1 percent in the 12 months through May.

The Bank of Canada earlier this month downplayed the rise in consumer prices, indicating core inflation was still well below target.

So-called core inflation, which strips away volatile elements such as food and energy, advanced 1.4 percent in the 12 months through April.

The lack of price action for the Canadian dollar comes as the Federal Open Market Committee is wrapping up its two-day policy meetings in Washington. Later this afternoon the FOMC will issue a rate statement, which will include a summary of economic projections. The Fed is expected to taper bond purchasing by another $10 billion, while keeping the benchmark interest rate at 0.25 percent.

The language the Fed uses in its rate statement and press conference could determine the short-term outlook for the Canadian dollar. If the Fed’s comments are perceived as hawkish, the loonie can expect a pullback from the 0.92 level.

The outlook on the Canadian dollar remains “stubbornly bearish,” according to a recent article published by The Globe and Mail. Escalating violence in Iraq has further complicated the loonie’s trade position. Military intervention by the United States could ensure crude supplies are not disrupted, but this won’t necessarily bode well for the Canadian dollar.

The Canadian dollar responds positively to higher oil prices, but only when prices are demand-driven. US intervention wouldn’t boost demand, only ensure supply is intact.

Crude futures advanced further Wednesday. Brent for August delivery rose $0.11 to $11.356 a barrel. WTI for July delivery advanced $0.39 to $106.75 a barrel.

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